Austin REAL ESTATE

Banks Pressed to Write Down Second Liens
Many homeowners are seeking to sell homes in short-sale deals, but banks are reluctant to approve them, pushing these distressed homeowners into foreclosure. Now lawmakers are stepping in to apply pressure to encourage banks to eliminate the most obvious stumbling block – second mortgages.

U.S. Rep Barney Frank, chair of the House Financial Services Committee, recently wrote a letter to the four largest U.S. banks urging them to write down second mortgages. Frank wrote that while second loans often have little value, “because accounting rules allow holders of these seconds to carry the loans at artificially high values, many refuse to acknowledge the losses and write down the loans."

While most first mortgages are now held by Fannie Mae and Freddie Mac or other investors in mortgage securities, about $766.7 billion in second liens are held by commercial banks, savings banks, and credit unions.

Source: The Wall Street Journal, James R. Hagerty (03/08/2010)